CBS Stock Said Undervalued

By David A. ViseBy David A. ViseJune 13, 1985

Wall Street arbitrageur Ivan F. Boesky said yesterday he believes CBS Inc. stock is "conservatively" worth between $220 and $240 a share and predicted that the gap between that value and the company's stock price would be closed within a year.

CBS is the target of a complex takeover bid from broadcaster Ted Turner. Boesky said he believes Turner's bid is worth between $150 and $160 a share. Turner is waiting for government approval before taking his bid to CBS stockholders.

Boesky, Wall Street's biggest independent speculator in stocks that are takeover targets, is CBS' second-largest stockholder, and thus would benefit by a market perception that the stock is undervalued. His latest Securities and Exchange Commission filing indicates that he owns 4.3 percent of the company.

The difference between the CBS stock price, which yesterday rose 1 1/2 to 117, and the $220-a-share projection is the difference between the public stock market valuation of the entire company and what the shares would be worth if CBS assets were sold in the private merger market, Boesky said. If Turner acquires control of the company, he plans to sell all of the CBS nonbroadcasting assets, including the company's publishing and record divisions, to help finance the acquisition.

Faced with Turner's hostile bid, CBS announced last month that it plans to consider financial transactions, including a possible merger or the repurchase of its own stock. That disclosure indicated that CBS believes it may need to take major steps that increase its stock price in order to defeat Turner's bid.

Any move by CBS that either significantly increases its debt or its stock price would likely defeat Turner's current bid. For example, if CBS increased its stock price by repurchasing shares at a substantial premium above the market price, Turner's bid would no longer be as attractive to stockholders because there would be little difference between the value of his offer and the price of CBS stock. Several Wall Street investment bankers have told The Washington Post that they believe Turner's bid will force CBS to undergo a financial restructuring to increase the value of its stock.

Boesky's relationship with CBS since he became a major stockholder has not been friendly. On April 9, CBS alleged in a lawsuit that Boesky had illegally financed his purchase of 8.7 percent of the company by violating margin rules that govern how much an investor can borrow when purchasing stock. On May 3, after Turner's bid was announced and after Boesky disclosed that he had reduced his stake to 4.3 percent, CBS agreed to drop the lawsuit and Boesky agreed not to increase his CBS stake beyond 4.3 percent for two years.

"I was shocked," Boesky said, when asked about the CBS lawsuit. "I've never been sued before . We didn't do anything that was 'suit-worthy' there either, and as it turned out, they finally realized that.

"We can invest up to 4.3 percent, which is all I want to do anyway," Boesky said, when asked to explain why he agreed to restrict the size of his CBS stake if the lawsuit filed against him had no merit.

CBS has been the target of takeover speculation since January, when a conservative group backed by Sen. Jesse Helms (R-N.C.) said it wanted to gain control of the network to eliminate what it believes is a "liberal bias" in news coverage. While many observers have been trying to determine who will end up in control of CBS, Boesky has other priorities. "As an arbitrageur, I am indifferent," he said. " . . . I just want my stock to go up."